This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

United: It's in the Bag Fees

CHICAGO ( TheStreet) -- It hardly seemed epochal when top managers at United (UAUA) came up with a new idea near the end of 2007: Why not charge passengers $25 to check a second bag?

For United, the fee represented a small piece in a far-larger effort, as fuel prices soared, to more closely align airline costs and revenue. It seemed unlikely to impact many passengers, because just one in four checked a second bag, and some of those would be exempt due to having elite status in United's frequent flier program. Additionally, the idea was not unprecedented: while no major carriers had bag fees, low-cost carrier Spirit (S) and some international carriers did.

Announced in February 2008, United's fee triggered some passenger protest, but most competitors gradually matched. Eventually, American (AMR) went further, adding a first bag fee in June 2008. And this year, each of the three largest carriers will collect more than $1 billion in new revenue from fees, with bag fees as a major component.

FTN Equity Capital Markets analyst Mike Derchin says United not only pioneered bag fees, but also has had success marketing seat upgrades through Economy Plus, extra-legroom seating, starting in 2006. "In the past few years, they've definitely been thinking outside the box," he said.

In imposing the second bag fee, United's focus was that "transportation is the core product, point A to point B," said Jeff Foland, senior vice president for sales and marketing. Extras, such as food, better seats and faster airport experiences should cost extra: In particular, checking bags involves additional costs such as increased fuel burn and maintenance of a costly baggage handling infrastructure.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
S $4.37 0.00%
AAPL $126.00 0.00%
FB $87.55 0.00%
GOOG $522.86 0.00%
TSLA $279.72 0.00%

Markets

DOW 17,683.58 -46.53 -0.26%
S&P 500 2,068.76 -8.02 -0.39%
NASDAQ 4,991.94 -17.2740 -0.34%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs